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Fannie Mae profit more than doubles

Fannie Mae, the biggest buyer of U.S. mortgages, on Wednesday said its quarterly profit more than doubled as low interest rates boosted demand for home loans and losses on its interest rate hedges declined sharply.
/ Source: Reuters

 Fannie Mae, the biggest buyer of U.S. mortgages, on Wednesday said its quarterly profit more than doubled as low interest rates boosted demand for home loans and losses on its interest rate hedges declined sharply.

But the company reiterated its outlook for slower growth in 2004, albeit still higher than the mortgage industry, and said profit margins will likely return to “more normal levels.”
Fannie Mae reported fourth-quarter net income rose to $2.12 billion, or $2.21 per share, from $952 million, or 94 cents a share, a year earlier.

The Washington, D.C.-based company said fourth-quarter operating earnings, which exclude recognition of changes in market values of its interest rate derivatives, were $1.77 billion, or $1.77 a share, up from $1.67 billion, or $1.66 a share, a year earlier.

On that basis, analysts on average had forecast that Fannie Mae would earn $1.75 share, according to Reuters Research, a unit of Reuters Group Plc.

For the fourth quarter, “mark-to-market” losses on Fannie Mae’s derivatives to hedge its interest rate positions fell by $1.75 billion.

Mortgage rates, which fell to 45-year lows last spring, drove the U.S. housing and mortgage industries to record sales in 2003. Until recently, the housing sector has been the lone bright spot in the U.S. economy.

On Wednesday, the Mortgage Bankers Association said its gauge of new mortgage requests to buy homes hit a record high last week.

REGULATORY CLOUD
Despite a robust business climate, Fannie Mae and its smaller sibling Freddie Mac have been heavily scrutinized by regulators and Congress after Freddie Mac admitted last year to manipulating its earnings to smooth out volatility.

Fannie Mae and Freddie Mac, which while shareholder-owned were created by Congress to increase home ownership, buy home loans from banks and other lenders to free up money so they can make more loans.

Freddie Mac’s accounting scandal resulted in the ouster of several top executives, including two chief executive officers, and forced the company to upwardly restate $5 billion in profits.
The scandal intensified calls for the government to tighten oversight of the entire U.S. mortgage finance system and to create a new tougher regulator for Fannie Mae and Freddie Mac.

In October, Fannie Mae corrected a $1.2 billion mistake due to computer errors in accounting for its derivatives. The company said the mistake affected balance sheet items but did not affect its third-quarter income level.

“We believe that Congress will not enact any changes to our regulatory status that would harm our ability to perform our mission,” Fannie Mae Chief Executive Officer Franklin Raines said in a statement.

On Wednesday, the U.S. House Financial Services Subcommittee is set to hold a hearing on a report on Freddie Mac issued last month by its financial regulator, the Office of Federal Housing Enterprise Oversight.